Community banks are drowning in a torrent of regulatory compliance costs, and Jack Barrett, president and CEO of First Citrus Bank, wants that to change.

Federal agencies that supervise financial institutions should focus on the largest institutions with the most complex transactions, Barrett wrote in a May 13 letter to Martin Gruenberg, chairman of the Federal Deposit Insurance Corp.

Barrett claims that the FDIC devotes three-quarters of its supervisory efforts to community banks that hold 13% of the industry's assets, while devoting only one-quarter to the largest banks.

“How is it sound for a soundness regulator to direct three times the amount of supervisor resources to 13 percent ($2.1 trillion) of industry assets, while 87 percent, $13.2 trillion of exposure, garners a mere 1/4th of supervisory resources?” Barrett’s letter said.

However, it's not the misallocation of FDIC resources, but the cost to First Citrus of managing all that regulatory scrutiny, that causes Barrett the most heartburn.

In 2014, First Citrus incurred $412,000 in expenses related to regulation, compared to less then $25,000 spent each year prior to 2008. The biggest chunk of regulatory expenses last year — $189,000 — was for personnel, as First Citrus, like many other community banks, has had to beef up compliance staff.

Regulatory costs equated to 72 percent of the bank’s net income of $662,000 in 2014.

"If we are too small to save, do the regulatory agencies know we are also small enough to drown in torrential compliance costs?” the letter said.

Yes, they know it. They'll pay lip service to the problem, then get about the business of consolidating the banking industry on the Canadian model favored by some. A few huge banks, working hand-in-glove with the central government to redistribute credit to those who most "deserve" it.

May 05, 2015

A recent study released by the University of New Orleans backs up what many have been contending: "Community banks in Louisiana and throughout the United States are rapidly disappearing, and federal laws meant to protect the country from another megabank bailout have saddled smaller financial institutions with disproportionately large costs."

The number of community bank charters plummeted 53.3 percent from 1993 to 2014, while the number of non-community banks jumped 17.6 percent, according to National and Regional Trends in Community Banking. The study was conducted by the University of New Orleans.

The causes include consolidation in the banking industry, competition from online banking and the crushing burden of “too big to fail” federal regulations, said Kabir Hassan, lead author of the study. The regulations are not working as intended to prevent the economy from being crippled if one of these megabanks fails.

“Actually in my reading, they have institutionalized it even further,” Hassan said. “And what it means is, when the law is made for a big bank, who suffers? The small, mom-and-pop community banks.”

[...]

Hassan spoke at a community bank meeting organized by Gulf Coast Bank & Trust Co. Sen. David Vitter, chairman of the U.S. Senate Small Business and Entrepreneurship Committee, also spoke at the meeting in Baton Rouge.

Vitter said he hopes to distribute the study’s findings as widely as possible, starting with the Senate Banking Committee.

Although the downward trend in community banking is well-known, when these complaints are brought to Washington, D.C., there are typically two responses, Vitter said. The Washington-type experts deny it is happening or say it’s an unintended consequence.

Obviously, Vitter is an ally of community banks in their quest for "regulatory relief." It will be interesting to see how his fellow members of the Senate Banking Committee, including everyone's favorite populist, Lizzie Warren, react to the study. With a yawn and a shrug, is my guess.

As the linked article points out, the loss of community banks has potentially serious consequences for small business lending. Traditionally, community banks have been the primary source of small business loans. While some commentators believe that alternative non-bank sources (including peer-to-peer lending) will eventually substantially supplant community banks, even if true (which I doubt), that's not going to happen overnight. I recall reading in the late 1990s prognostications that the internet would make soon branch banking obsolete. Several years later, the federal banking regulators were telling consultants and bank lawyers that they'd better not bring any more "internet-centric" bank charter applications for approval, because the bloom was off that rose. While the internet, and mobile, banking channels may one day replace brick-and-mortar branches, change happens more solely than many "true believers" expect, and severe dislocations for customers can result while the paradigm is shifting.

I think regulatory relief for community banks ought to be getting more "play" in Congress than we've seen thus far. More statistical support like the UNO study may help it gain traction. Let's hope so.

April 08, 2015

Four and one-half years ago, we wondered if the three-year moratorium on FDIC insurance applications for new industrial loan companies (ILCs) and other restrictions placed upon ILCs by Franken-Dodd would spell the death knell for the ILC charter. While that moratorium expired a couple of years ago, no new ILC charter applications have been filed since then, and those few charter applications that were pending before the Care Bair put her Bairly legal 2006 moratorium on new ILC insurance-of-account applications have still not been approved by the FDIC. Therefore, a disinterested observer might be forgiven for assuming that the moribund charter might remain, as Fredo Corleone was to his brother, The Godfather, "dead to me."

With optimism growing that de novo bank activity might rebound, some observers say attention could soon shift once again to the embattled industrial loan company charter.

[...]

[N]o federal law banning commercial or financial parents from pursuing ILCs has ever been enacted. And as the industry's continued recovery increases the likelihood of more new-bank applications overall, some observers believe interest in the ILC charter may ultimately pick up as well.

"You are going to see movement because there is pent-up demand," said Frank Pignanelli, who represents industrial banks as a partner at the Utah government relations firm Foxley & Pignanelli. "There is pent-up demand for capital to be used either through ILCs or other state-chartered institutions and I just don't think the FDIC can stop that any longer."

Other commentators think that just because a couple of de novo commercial bank applications have survived the FDIC gauntlet in the last five years, that is no reason to think that ILC de novo applications will fare as well, especially when the owner will be a commercial (as opposed to financial) business. They point to the fact that the two successful de novo bank charter applications involved unique situations, and clearly involved banks focused on serving specific communities where the need for a traditional community bank was clearly demonstrated (after considerable time and expense). The traditional attraction of the ILC charter has been to serve specific commercial businesses in financing their operations, including providing financing to customers who buy their products. The reason for Oh-My-Little-Sheila's original renegade moratorium, and the outcry that prompted and continues to "dog" the ILC charter, involved the efforts of retail giants like Home Depot and Wal-mart to enter the "banking" business, which scarred the living ca-ca out of the commercial banking business (which lives in mortal fear of the low-cost competitive advantage possessed by entities like Wal-mart as much as it does the tax-exempt status of credit unions). Critics see those concerns as still being the insurmountable roadblock to a resurgence of new ILCs that are FDIC-insured.

It's true, however, that there is no impediment built into federal laws for new ILC charters.

"We are pretty close to the possibility where you could see one of these applications fairly soon," said V. Gerard Comizio, a partner at Paul Hastings LLP. "It is now legal again for a nonfinancial company to get an industrial loan bank charter and deposit insurance for it."

Jerry's perfectly correct regarding legality. However, it was legal in 2006 for the FDIC to approve insurance of accounts applications for ILCs whose owners were engaged in commerce, and the FDIC punted, and has continued to punt, the ball down the field. Then again, Jerry's a guy whose opinion I respect, so I may have to turn my ILC frown upside down.

Or not. "Pretty close to the possibility where you could see" is, for me, a sight that is far beyond the visible horizon.

March 25, 2015

No sooner do we post an article about how the dearth of new bank charters appears to be a critical (if not the critical) factor in the phenomenon known as "the incredibly shrinking community banking universe" than out of the chute pops a new community bank (paid subscription required).

Primary Bank is just the second new bank to be approved in more than four years, and charts a potential path for other applicants to follow. The approval, which was reported last week, came more than a year after regulators signed off on Bank of Bird-in-Hand in Pennsylvania in late 2013.

"This does now open the logjam. Now the [Federal Deposit Insurance Corp.] has a process, and as long as future applicants follow that process, they should be in good shape," said Donald Musso, president and chief executive of the consulting firm FinPro, which worked with the new bank's organizers to move the application.

Musso said he is in conversations with four other clients possibly interested in filing de novo applications, although nothing is official yet.

The regulators are "working really hard in trying to open the doors for new de novos to form, but the standards are pretty high," he added. "You need $20 million-plus of new capital, which is a lot of capital. You've got to have enough capital to make it to profitability."

"A lot of capital." Ya' think? When I started working on de novo bank charters, back when Andrew Jackson was trying to bring down the Bank of the United States, you needed a tenth of that amount. Of course, a dollar went a lot farther then, as my buddy Tom Sawyer5 used to say.

American Banker reporter Joe Adler correctly observes that two banks in four years "hardly makes a trend." He also notes that the community in which the new bank is located suffered the sale of local banks, leaving it "local bank free." Also, the new CEO is a heavyweight in the banking industry and a former governor of New Hampshire is a board member. The bank's business plan appears to be conservative, focusing on small business loans, with no home mortgages and, I assume (although the article does not state this), little or no commercial real estate lending and certainly not much acquisition and development lending.

Consultant Byron Richardson also notes that private equity investors do not appear to be chomping at the bit to dive into de novo banks.

Richardson said a critical obstacle to new-bank formations lately has been finding investors willing to earn a slow rate of return in the face of heavy capital requirements and other regulatory burdens.

"A founder or organizer is not just going to put their money in a mattress," he said. "Part of the equation is: How much capital will the regulators require? But then with the cost of complying with the regulatory burden… how much money can the bank itself earn?"

On the other hand, the lead investor in Primary Bank said that he wasn't phased by the "regulatory burden".

"There has obviously been some concern with Dodd-Frank and regulations, and some people say, ‘That's why there's not banking activity,'" [William] Greiner said. "Our going forward is testament to the fact that we can see opportunity. We're not focused on some of the noise per se."

Unless, of course, the "noise" raises to the level of a diving-bombing Stuka. We'll see how the bank continues to ignore the regulatory burden "noise" as time marches on. Focusing on business rather than consumer loans is one way to lower the noise level.

Another factor involved in this de novo that may limit the pool of potential investors is the large number in the group.

"Most banks start with five, eight, maybe 10 individuals…. I felt it was important, given the environment, to have a bigger, broader group. We talked about having potentially 50 investors in that initial round," he said. (They ultimately raised an initial $3 million from 133 individuals.) "I thought if we could get 50 community leaders, business owners, professionals, to come and take a stake in this bank, it would make a statement that it's not a club… but really a community-based initiative," he added.

I agree with Greiner that the FDIC loves that aspect. Broad-based community investment groups tend to be more conservative, more focused on the long-term needs of the local business community that the bank will serve than on using the bank to make profits, ratchet up stock values through growth of assets and ROE, and cashing out in five years or so. If that's going to be a requirement going forward, however, it will dampen the enthusiasm of a number potential capital sources.

While this latest approval may, indeed (as Musso asserts), "open the logjam," we'll see how wide that opening is, and whether it remains open. At present, color me "skeptical." We may see a few more of these in the next couple of years, but I simply don't yet see a wave on the horizon that yet appears to be worth riding.

March 08, 2015

Economists Roisin McCord and Edward Simpson Prescott have taken an in-depth look at the rapidly shrinking banking industry (in terms of the number of banks) in the United States since the Great recession of 2007-08 and come to the conclusion that the cause is the unprecedented decline in the creation of new banks since 2010.

From the "Economic Brief" (co-authored with Tim Sablik) that summarizes the more detailed analysis linked above):

The financial crisis of 2007–08 significantly altered the banking landscape. From 2007 through 2013, the number of commercial banks in the United States fell by more than 800, a 14 percent decline. This drop was highly concentrated among small community banks (banks with less than $50 million in assets), which saw their numbers shrink by 41 percent.Although many banks failed during the crisis and its after-math, this decline was driven largely by a lack of new banks. The number of newly formed banks (called de novo banks) has fallen sharply since 2010. In 2012, there were no de novos", and in 2013 there was only one: Bank of Bird-in-Hand,formed in Lancaster County, Pa., to serve the Amish community.

The authors claim that this "collapse in new bank entry" is unprecedented "and could have significant economic repercussions."

In particular, the decline in new bank entry disproportionately decreases the number of community banks because most new banks start small. Since small banks have a comparative advantage in lending to small businesses, their declining number could affect the allocation of credit to different sectors in the economy.

The authors take a look at other financial crises in this country during the past 50 years. While the erosion of interstate branching barriers and the financial impact of previous banking crises had reduced the number of independent commercial banks from between 12,000 and 13,000 in 1980 to less than 7,000 in 2000, each previous economic recession that caused an accelerated reduction in the number of banks through bank failures and mergers was accompanied by the robust creation of new banks to offset the failures. The last five years do not differ markedly from the exit rate of banks in previous years. What is remarkably different about the last five years is the almost complete absence of new bank creation. From 2011 through 2013, only four new banks were created.

The authors discuss the possible reasons for the lack of de novo creation. One explanation is low bank profitability as the result of the Fed's low-interest-rate policies and the resultant anemic net interest margins. However, in discussing another Federal Reserve Board study that takes this position, the Richmond Fed's economists contend that a "literal interpretation of " the FRB's model "would predict that even if the net interest margin and economic conditions recovered to 2006 levels, there still would be almost no new bank entry." They also cite another study, this one by the Federal Reserve Bank of Kansas City, that concludes that while the net interest margin is historically low, it is similar to the net interest margin that followed the 2001 recessions and higher than the net interest margin during the recovery from the 1981-82 recession.

Another potential factor discussed is the high cost of operating a small bank due to the plethora of regulations enacted in the wake of the Great Recession, including those mandated by the Dodd-Frank Act. While the authors note that a recent study found that compliance staffs and costs have risen substantially since 2010, the ratio of non-interest expenses to assets for community banks has not increased significantly. Therefore, regulatory costs, standing alone, may not be a major deterrent to de novo creation, since they may be offset by decreases in other costs.

Another factor, which we also have discussed, involves the time and expense of de novo applications, especially the applications process for insurance of accounts filed with the FDIC. The process is a long and expensive, and there has been a much greater chance than in previous economic cycles that the FDIC will not grant approval. Spending considerable time, money, and brain cells, not to mention the cost of cases of anti-acids to fight the heartburn, with a questionable chance of approval has, in our experience, been a major deterrent.

Once potential deterrent, the 2009 policy of the FDIC to extend the period of time that new banks are subject to greater examination costs and higher capital requirements, was allegedly abandoned by the FDIC within the past year. We think that jury is still out as to whether this abandonment is real or window dressing.

Obviously, the authors of this study, working within the bank regulatory system, are required to be more circumspect and less opinionated. As one living outside that system, and being possessed of a faulty governor of my internal sense of circumspection, I can be more blunt. My personal concern is that I have neither heard nor read anything recently that convinces me that the same regulators at the FDIC who made comments a few years ago that there were too many banks in the United States, and they were in the business of reducing, not maintaining, the total number of banks, have changed their opinion.

Whatever the reasons for the dearth of de novos, the study's authors draw some stark conclusions.

The current decline in commercial banks appears to be driven largely by the complete collapse of new bank entry. If entry remains weak and the exit rate remains constant, the number of banks overall, as well as the number of community banks, will continue to fall.

November 25, 2014

Former FDIC Chairman William Isaac claims that it's long past time to cut small and medium size banks regulatory relief and to take away roadblocks to mergers and acquisitions for the same institutions. He and Professor Robert Kaplan also briefly observe that the federal regulators' war on check cashers and payday lenders is depriving the "unbanked" of "bank-like" services. As is often the case with Bill's views, there are no objections from this peanut gallery.

September 22, 2014

Recently, a group of credit union executives in Cincinnati sat down with Staff Reporter Steve Watkins of the Cincinnati Business Courier and let him know that when bankers complain about the regulatory burden that is crushing them, credit union executives feel their pain (albeit, in a tax-free kind of way).

A group of Greater Cincinnati credit union executives met with me for lunch on Monday at Palomino to talk about the issues that are affecting them, and the regulatory burden was topic one.

They had just met Monday morning with U.S. Rep. Steve Chabot, a Cincinnati Republican, primarily about the possibility of easing the regulatory burden. Patrick Harris, director of legislative affairs for the Ohio Credit Union League, told me the banking sector has had 180 new rules and regulations foisted upon it by Congress since 2010, following the financial crisis.

This isn’t a banks versus credit unions thing. Most of the changes the credit unions want would also ease burdens on banks, Harris said. They’re things like reducing the need to send out disclosures about privacy policies, as well as the ability of some credit unions to tap the Federal Home Loan Bank for funds. How big of a factor is it? We know how regulatory costs have caused banks like the Bank of Kentucky to sell. And it has $1.9 billion in assets. What chance do credit unions with $20 million or $30 million in assets have to comply with those same rules?

“When the small credit unions merge, one of the main reasons is compliance costs,” Cinfed Credit Union CEO Jay Sigler said.

The first thing you'll notice is that they're all sitting down for lunch and a bitch-fest at Palomino. The visual of complaining about the cost of regulations while scarfing down Tuna Puttanesca or Asiago-Almond Crusted Scallops is somewhat incongruous. Maybe the newspaper picked up the tab.

The second thing you'll notice, however, is that the smaller the size of the institution, the more incentive there is to merge. Inasmuch as credit unions, especially smaller credit unions, are sometimes touted as a vehicle most able to offer services to the "underbanked" customers who often might "fall prey" to evildoers like payday lenders, the fact that regulatory burdens are leading many to merge should give banks cold comfort. While the number of competitors may decrease, those who are left standing when the shooting stops are going to be better armed at not only surviving, but competing with commercial banks.

The article also notes that all types of loan demand appears to be relatively flat. While one credit union official observes that business loans are a small part of its portfolio, I think that there will be no let-up in pressure by credit unions for more business loan authority. I also expect that there will be no let-up in counterattacks by commercial bankers, who will continue to demand that if a credit union wants to loan like a bank, it should pay taxes like a bank.

Still, the important point to me is that regulatory burden continues to be a driver of financial industry consolidation across the entire spectrum. In other words, unless there is some serious regulatory relief provided (likely via the US Congress), especially for smaller institutions, the incredibly shrinking financial services industry appears to be ia horror show will continue for some time.

September 10, 2014

ICBA chief Cam Fine recently turned optimistic (paid subscription required) about an eventual uptick in de novo charters. However, he doesn't think that wave will break for a few years.

"It may not be as robust as the late '90s, when we had 150 to 200 [new banks] a year, but maybe 50 or 60 a year, particularly by 2020," Fine said. "First in, say 2017, it will be 10 to 15."

The new activity will sprout once the industry players feel the operating environment has leveled off, he said. "The money will come back once we digest [new regulation] and the turmoil gets in the rear view," Fine said, adding that startup capital "will maybe go where there is no local bank."

Based primarily upon what has occurred in the past, Cam's predictions make sense. On the other hand, the past is not always prelude to the future. As we've discussed previously, some of the regulatory agencies, especially the FDIC, have, by their actions and "sub rosa" admissions (if not their public statements), expressed a view that there are simply too many financial institutions in this country to ensure that all prosper, and that reducing the total number of financial institutions is a long-term goal. If that's the view, then unless it changes, I don't see another round of de novo charter approvals, certainly not 50 to 60 a year, being likely.

Of course, I could be wrong. It's happened.

One of the recent trends that those of us in the bank mergers and acquisitions arena have noticed over the past couple of years is the number of deals that have been hung up, and in some cases killed, by fair lending concerns initially raised by fair lending advocates, then taken up by regulators such as the Federal Reserve. Speaking recently with an investment bankers heavily involved in with community bank merger and acquisition transactions, I was struck by how frustrated he and others have become with the Fed's fly-in-the-ointment role in slowing down what many observers think is an inevitable consolidation of the banking industry. A number of affected participants have voiced the view that that the Fed has gazed over the horizon and been concerned by what it sees: fewer banks to regulate, especially among the ranks of smaller Fed member community banks. These observers assert that the Fed is deliberately slowing down, and sometimes killing, deals on the pretext of fair lending concerns, but actually because it's concerned that consolidation might adversely affect the agency itself. With fewer total banks to regulate, the proponents of reducing the number of federal bank regulators to a single agency might gain support.

I suppose that's a plausible view. Certainly, it has had the effect of artificially sustaining a higher number of banks than would be the case if nature took its course. I think it may be simply more likely that the fair lending roadblocks that have been thrown in the way of recent transactions have more to do with the ideological bent of those at the top of the regulatory food chain than they do to with worry about the need to preserve enough of the regulated to justify the existence of the regulator.

Regardless, I think consolidation is a trend that will continue, as does Cam Fine.

"We have 6,300 community banks as of right now," Fine said. "My personal prediction is that… we will be at 4,800 to 5,300 banks" by the end of 2019.

That sounds about right to me. Fair lending or no fair lending, the trend is toward consolidation and I think that is where the industry is headed, whether or not the Fed makes the process more painful. Where I'm more pessimistic than is Cam is in predicting that such consolidation will, as it has in the past, spur a wave of new bank charters. Given the fact that so many of the community banks that failed in the latest downturn were de novo banks, I simply don't see the FDIC agreeing to grant 50 to 60 new bank charters on an annual basis.

August 19, 2014

*The collateral damage caused by a non-existent condition that actually exists--the oft-denied FDIC mortorium on de novo bank approvals--includes bank M&A activity. According to the American Banker's Robert Barba and industry participants that he interviewed, a vital portion of the bank "M&A food chain" has been eliminated.

"It was normal for your bank to get bought and, two or three years later, sit around a kitchen table, decide to start a bank, plot to get local shareholders," said Timothy Chrisman, principal of executive the search firm Chrisman & Co. in Los Angeles.

"It was a feeder source," Chrisman added. "It was the process of community banking and that has changed dramatically."

The consequences of this change might be unintended, but are important.

A smaller banking industry facilitated by acquisitions and few new entrants has various ripple effects. In the short term, a lack of second-act opportunities could stymie activity as bankers hold on to what they have. In the long run, it will lead to a consolidated industry with less innovation and a deteriorating customer experience, some advisers say.

Less innovation in an industry not known as "cutting edge" to begin with is not a good thing.

Other observers cite the longer period of strict FDIC scrutiny after formation and higher capital requirements for de novos, and the fact that the costs of regulatory compliance in the post-Franken-Dodd world, as also discouraging potential de novo applicants from proceeding. Spending hundreds of thousands of dollars on an application that stands a slim chance of being approved would call into question the business savvy of a de novo's sponsors. Needing so much capital and asset "heft" to not only secure regulatory approval but to afford the ongoing regulatory burden throws additional wet blankets on the idea of traveling the de novo highway.

"The belief that exists now is that it would be hard to prosper as a de novo," said Wesley A. Brown, a managing director at KPMG Corporate Finance. "Bankers starting a new bank 10 years ago would have done it with enthusiasm. The idea that they can thrive has been shaken."

A FDIC spokesperson quoted by Barba denies the existence of a formal or informal FDIC moratorium,which is consistent with the FDIC's forked-tongue consistent position on the issue. Instead, the FDIC contends that there are so many "weak bank" charters available that starting a de novo is less attractive. That this position serves the FDIC's interests in steering would-be de novo applicants to purchase a marginal existing shop rather than start a new one, thereby rescuing a potential failure from the jaws of a future assisted sale, is purely coincidental.

Because the old paradigm of sell and start afresh appears dead, senior management's impetus to support a sale is often lacking. On the other hand, where the shareholders force a sale, there's also less likelihood of the seller's management jumping ship and starting a competitor. These factors work to lessen M&A activity on the one hand and encourage some M&A activity on the other hand.

While some of the industry participants think we could see a pick-up in de novo activity in two or three years, I heard the same think two or three years ago. Predicting the future is always hazardous business, and I could be surprised that de novo activity eventually resumes. My honest few is that I simply don't see it happening, unless the FDIC and other federal banking regulators have a change of heart, in reality and not merely as a matter of bureau-speak for public consumption. I think that the number of banks will continue to shrink, and that survivors will grow larger and larger in order to not only prosper, but to survive.

April 29, 2014

In the article I discussed a couple of days ago, which was a report on public statements by FDIC supervisory personnel on issues of concern to banks of all sizes, one of the other topics that the FDIC discussed was de novo banks. Readers of this blog know that it's a topic that was near and dear to my heart from the days when The Care Bair first imposed a moratorium on FDIC insurance for new industrial bank charters.

Here's what Doreen Eberley, the FDIC's director of risk management supervision, had to say on the subject of new bank charters.

• De novo banks coming back? With one fairly recent exception, bank startups have been nil in recent years.

“We are absolutely open for business,” said Eberley, in terms of being willing to entertain new applications for deposit insurance. “There hasn’t been a lot of business, though, that we’ve heard about.” (FDIC grants deposit insurance coverage, but chartering is handled by state regulators and, for national banks, the Comptroller of the Currency.)

Eberley suggested that capital that might have gone to startups went into existing banks during the crisis and the post-crisis cleanup. She said that $40 billion in new capital came into banks under $1 billion—excepting some specialized institutions—between 2008 and 2012. It was simply cheaper for investors to buy into existing banks than to start from scratch. However, she suggested that as many community bank share prices are rising, de novo banking may appear attractive once more.

She also noted that most consolidation of community banks has involved mergers and acquisitions with other community banks.

The above is bureau-speak for "we are discouraging de novo bank charters, but refuse to admit it publicly." There have been only a very few de novo charter FDIC insurance applications approved since the economy tanked. As one state banking chief told me several years ago, the FDIC says that there are too many banks in this country, it's in the business of reducing the total number, and it's certainly not consistent with that plan to approve applications for insurance of accounts to new banks. That's what regulators tell one another over a couple of cool mugs of brew, but that's not anything any of them will cop to publicly. In fact, they'll deny it, if pressed.

The reason that "most consolidation of community banks has involved mergers and acquisitions with other community banks" is because of another worm hole in the FDIC time-space continuum: a distaste for private equity. Good luck assembling a group of private investors who look upon the investment in a community bank, or a group of community banks, as a great investment "play." Sure, a number of those groups grabbed some failed banks from the FDIC during the post-crash wave of bank failures, but the FDIC soured on private equity players and their nasty desire to make a return on their investment. If you exclude private equity players from the buying group, then, of course, what's left are other banks.

This is not to say that you cannot get a de novo bank started, nor that a group of investors who are interested in investing in community banks purely as a private equity investment "play" are never going to be able to obtain regulatory approval. It does mean, however, that it's going to be tough to accomplish, and the instances where they are approved are going much more rare than they used to be before the crash of 2008. Even those few that make it the finish line are going to take a lot more time, involve a lot more paperwork, and require a lot more expense than they did "in the good old days." The odds are , you'll be spending all that time and money and still die somewhere short of the home stretch.